Devaluation ‘unthinkable’ – Central Bank

THE CENTRAL Bank yesterday dismissed speculation that the Cyprus pound could be devalued, branding such a possibility “unthinkable”.

“There is absolutely no reason, no shred of evidence, to lead to a devaluation of the Cyprus pound,” said Central Bank governor Christodoulos Christodoulou.

“Nothing justifies even the thought of that,” he said in response to a question from a journalist on purported rumours on the island’s real estate market.

Authorities keep the Cyprus pound in a 15 per cent fluctuation band around the euro.

It has been pegged to the euro and its predecessor, the ECU, since 1992.

Cyprus hopes to join the single currency about two years after it joins the European Union with nine other central and east European countries next May.

A recent worsening of key indicators such as the fiscal deficit – expected to exceed five per cent of gross domestic product this year – has cast some doubt on whether it can be tucked in to the EU requirement of three per cent and under within the next three years.

“There is no change on the timetable to join the exchange rate mechanism (ERM II) immediately after accession on May 1 2004 and to enter the eurozone with the aim being by January 1 2007,” Christodoulou said.

Senior central bank sources said the January 2007 date did not contradict past official aims of adopting the euro two years after joining the EU, which falls in mid-year 2006.

Christodoulou, who spoke to reporters after a meeting of the rate-setting monetary policy committee, said benchmark interest rates would remain stable.

Interest rates are 4.5 per cent for advances and 2.5 per cent for deposits. (R)

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